Burger King Worldwide (BKW.DL) recently announced that it has increased the size of its Big King, now weighing in at 4 ounces versus McDonald's (MCD 0.09%) Big Mac at 3.2 ounces. You will likely notice Burger King commercials related to this change in the near future.
The best part for customers is that Burger King increased the size of its Big King without hiking the price. The Big King will still cost you $3.69. The average price for a Big Mac in America: $4.62. That's quite a difference, especially considering the target customer for fast-food restaurants is struggling. The more expensive price for the Big Mac would be a positive for McDonald's if times were good and traffic was consistently increasing, but due to difficult economic times and fierce competition, that's not today's reality.
To be fair to McDonald's, Burger King has done nothing more than copy McDonald's concepts and enhance them. For instance, McDonald's has long been known for having the best French fries in the world. Burger King, wise to the fact that today's consumer is health-conscious, launched Satisfries -- a lower-calorie French fry. McDonald's has the McRib Sandwich, so Burger King introduced its BBQ Rib Sandwich. Now Burger King offers the Big King to compete with the Big Mac.
While this might seem unfair, it's just business. Burger King should actually be congratulated on finding a way to drive more traffic to its stores. And if you're not sold on the success of the Big King, tests for the new bigger version of the Big King in South Florida (200 restaurants) led to a 10% improvement in the guest satisfaction rating -- according to Alex Macedo, president of Burger King North America.
McDonald's has yet to fight back with its Big Mac. At the moment, there are no national marketing campaigns; but in some select regional markets, customers can get a second Big Mac for $0.01 if they buy one at $4.62.
To this point, it appears as though Burger King is gaining ground on McDonald's, and that's likely an accurate assumption. Numbers below will also indicate this trend. However, while Burger King is making effective moves, it still might not be the best investment in the fast-food burger space.
High expectations
Wendy's (WEN 2.22%) has enjoyed much recent success thanks to its brand transformation and image activation initiatives. Looking ahead, Wendy's expects to increase its number of image activation locations from 300 to between 700 and 750. Considering this modernization of restaurants has played a significant role in the Wendy's comeback story, it's likely that more success will come from this continued imitative.
In fact, Wendy's expects fiscal-year 2014 comps to come in at 2.5% to 3.5% and for long-term comps to be at least 3%. Long-term earnings-per-share growth is expected to be in the mid-teens. Furthermore, Wendy's recently announced a $275 million share-buyback program.
Burger King's systemwide fourth-quarter comps jumped 1.4%, beating expectations of a 1.3% increase. In the U.S. and Canada, comps increased 0.2%. That might not sound too hot, but expectations were for a comps decline of 0.4%.
Burger King is seeing exceptional growth in Asia Pacific, with comps jumping 6.2%, primarily thanks to Australia and South Korea. This strong international performance might lead to increased growth potential. Wendy's, however, is delivering domestically, which is very difficult to do in today's economic environment and with all the competition -- not just from McDonald's and Burger King but fast-casual restaurants as well.
As far as McDonald's is concerned, domestic comps slid 3.3% in January. The company blamed the weather and the slow economy, but Wall Street doesn't care about excuses, nor should investors. And if a slow economy is a headwind, then why is Wendy's forecasting strong long-term comps growth? Going forward, McDonald's will focus more on its McCafe -- coffee, fruit smoothies, and breakfast sandwiches.
Basically, it might want to eventually become a more affordable version of Starbucks. This might not be a bad idea. It would focus more on high-demand products while cutting costs in other areas. McDonald's would have to compete with Dunkin' Brands as well, but McDonald's strong cash flow and global brand power could support a marketing advantage.
The Foolish bottom line
Burger King is outperforming McDonald's at the moment, which makes it somewhat appealing, but you always want to go with best of breed. Despite its smaller size, Wendy's is the top performer in this group. Given the company's optimistic expectations, partially due to its continued expansion of its image activation initiative, this success is likely to continue.
Over the long haul, don't count out McDonald's. It's likely to look a lot different five years from now, and that's meant in a positive way, but getting there will likely involve many challenges. Not all shareholders will want to deal with this challenging journey. Please do your own research prior to making any investment decisions.